What Is A Credit Score?

In simple words, a credit score is a number that represents your creditworthiness.

The number is given to every citizen of the UK above the age of 18, making them eligible for financial borrowing.

Your credit score plays an important role in financial lenders approving your applications and lending you money. The higher your credit score is, the better your profile looks to a potential lender. High credit scores often convince lenders to lend money. On the other hand, a lower credit score may increase the chances of declining your mortgage application.

While every lender uses different methods to calculate your credit score, all of them use information obtained from three major credit reference agencies – Experian, Equifax, and TransUnion. These agencies work with building societies, banks, retailers, mobile phone companies, and other relevant entities to help them decide if a borrower is capable of repayments.

Your credit score depends on your credit history, which involves the money you borrowed in the past and how you repaid it. Timely repayment of dues would result in a higher score. On the other hand, delays and defaults would lead to a drop in the credit score.

What is a Good Credit Score in the UK?

Depending on your financial history, your credit score ranges from 0 to 999. A good credit score is different for different credit reference agencies.

For Experian, a score above 881 is considered to be a good credit score.

For Equifax, a good credit score starts at 670.

For TransUnion, a score between 604 and 627 is considered to be a good credit score.

What is Not Included in Your Credit Score?

Here are the aspects that are not taken into consideration while calculating your credit score:

• Your bank account balance
• Your salary
• Your buying habits
• Marital status
• Your medical history
• Your educational qualifications
• Student loans
• Council tax arrears
• Payments towards child maintenance
• Declined applications

Always remember that your credit report only consists of information related to your ongoing and past debt. Moreover, bankruptcy would have a considerable impact on your credit score.

Where are Credit Scores Used?

Credit card companies, banks, mortgage lenders, and all entities dealing with legal and official financial lending would use your credit score before lending you money.

For example, if you are willing to get yourself a mortgage to buy a new house, Or if you looking to Remortgage your mortgage broker would help you find a lender that best suits your needs. Once you have found the right lender, they would check your credit score to:

• Check if you qualify for the concerned financial product/deal,
• The interest rate you would be charged, and
• The amount you would be eligible to borrow.

The same goes for all other forms of financial borrowing. Lenders take credit scores very seriously as they provide them with the assurance about you are able to repay them. Your credit score helps lenders evaluate the amount of risk involved in lending you money, thereby determining the amount and interest for a product.

How to Improve Your Credit Score?

Improving your credit score is a slow but sustainable process. Here are some of the most effective ways of improving your credit score:

Pay Bills On Time

The most obvious yet important way of improving your credit score is to pay all your bills on time. Make sure you pay the bills as soon as they are due without any delays. Paying utility bills on time has a good impact on your credit score, especially if you are struggling to improve it.

Pay Rent On Time

Paying your rent on time can have a direct impact on your credit score. Under a scheme called Rental Exchange Initiative, you can increase your Experian credit score for free. Instead of paying rent directly to your landlord, the scheme allows you to pay it to a middle agent (known as Credit Ladder) who passes it on to your landlord. This agent lets Experian know about the payment, thereby influencing your credit score. This way, timely rental payments over can help you boost your Experian score.

Do Not Keep Your Credit Card Unused

It is a common misconception that no credit history means a high credit score. If you do not have any history of credit, financial lenders would not have any reference or idea about your potential repayments. If you have a credit card, do not keep it unused. Use it and make sure you repay your debt on time to increase your credit score.

Moreover, it is always advisable to use credit cards for making smaller payments. Making bigger payments may make it difficult for you to make repayments on time.

Do Not Use the Whole of Your Credit Limit.

If you are provided with a line of credit, make sure that you use only a small portion of it. Do not use the entire credit limit as it would affect your credit utilization rate. Ideally, it is advisable to use under 30% of the credit limit sanctioned to you. This way, if your credit limit is reduced in the future, a lower credit limit would increase your credit utilization rate.

Avoid Withdrawing Cash Using Credit Cards.

Unless the circumstances are unavoidable, make sure you do not use your credit cards for withdrawing money. Financial lenders often see this as a sign of poor money management. Moreover, withdrawing cash using credit cards is often accompanied by high interest rates.

Before you decide to make financial borrowings, understand the importance of your credit score and work towards increasing it to get better deals.

To get your copy of credit score use check my files were you can see all the 4 credit reference agency in one.

Remember thinking of mortgage then your credit score is the first thing you need to work on.